Johnson & Johnson CEO Weldon to step down in April

Bill Berkrot, Michele Gershberg

6 Min Read

NEW YORK (Reuters) - Johnson & Johnson Chief Executive William Weldon will step down from his post in April after a series of recalls called into question the quality of the healthcare giant’s products, from artificial hips to infant Tylenol.

Weldon, 63, will remain chairman, the company said on Tuesday. He has held both roles for nearly 10 years, after three decades spent working his way through the company from his first job as a sales representative at J&J’s McNeil consumer division.

Vice Chairman Alex Gorsky, 51, will become CEO at the next board meeting on April 26, making him the ninth person to lead the company since J&J’s founding in 1886.

Under Weldon’s tenure, J&J expanded a sprawling business comprising more than 250 companies, from prescription drugmakers to a medical devices division and units that make personal care products.

J&J shares are up less than 2 percent since Weldon took over a decade ago, but have recovered about 14 percent since August 2010 when the company was mired in product recalls.

In the past two years, the company that long prided itself on a credo of high quality has seen its reputation tarnished by massive recalls for products that were poorly manufactured or failed at a higher-than-expected rate.

“Gorsky is inheriting a company with a better pharmaceutical pipeline than it had 5 or 6 years ago,” Morgan, Keegan & Co analyst Jan Wald said. “He is inheriting a consumer division that’s still embroiled in problems and he is getting a medical device business that he needs to refresh and restructure and get it to grow again.”

“He’s got a lot of work to do and it is going to be very hard to affect anything in the short-term,” Wald said.

The quality control problems at J&J’s McNeil consumer healthcare unit — which makes over-the-counter medicines like painkillers Tylenol and Motrin — were deemed so pervasive that U.S. health regulators took over supervision of three manufacturing plants in March.

Under a consent decree that the McNeil unit was forced to enter into, the U.S. government will oversee those errant plants for at least five years, an independent expert was retained to inspect manufacturing facilities and the U.S. Food and Drug Administration can levy fines up to $10 million annually if it feels the agreement has been violated.

The consumer products recalls cost the company nearly $1 billion in 2010 sales.

Last month, the company said it would take a $3 billion charge, mostly to cover costs for its recall of metal artificial hips by its DePuy Orthopedics unit. The company also had to recall contact lenses, heart devices, such as stents, and insulin pump cartridges.

The latest trouble came just last Friday, when J&J recalled the entire U.S. supply — 574,000 bottles — of its infant Tylenol soon after the product had returned to pharmacy shelves.

Weldon was called before Congress in late 2010 to address the recalls, including an incident in which J&J hired contractors to pose as customers and buy defective bottles of Motrin at drugstores rather than alert the general public.

“This was not one of our finer moments,” Weldon said at the time.

TWO-WAY RACE

Gorsky is the latest in a long line of CEOs to come from within the company, although he left in 2004 for a four-year stint as Novartis’ head of pharmaceuticals in North America before returning to J&J.

“Any time you change the hand at the tiller, it’s liable to liven things up a bit,” said Piper Jaffray analyst Matt Miksic.

Miksic said he does not expect to see great rapid changes, but added, “resolution of the succession question and an energized new CEO rising to the challenge is a good thing for the company.”

Gorsky began his J&J career in 1988 as a sales representative with the Janssen Pharmaceutica unit. In 2001, he was appointed president of Janssen, and in 2003, Gorsky became group chairman of Johnson & Johnson’s pharmaceuticals business in Europe, the Middle East and Africa. After returning to the J&J fold he became global chairman of the Surgical Care Group.

Investors had expected Weldon would be succeeded by Gorsky or co-Vice Chairman Sheri McCoy, who were promoted to the shared post in December 2010. McCoy will report to Gorsky and continue to lead the company’s pharmaceuticals and consumer groups.

J&J’s planned $21 billion purchase of Swiss medical device maker Synthes, its largest ever, may have helped tip the decision in Gorsky’s favor, some said.

“Medical devices has now become their biggest division by sales and earnings and is going to be even bigger when the Synthes deal closes, and that’s obviously Alex Gorsky’s background,” said Jeff Jonas, co-portfolio manager for the Gabelli Healthcare and Wellness Trust, which holds J&J stock.

Jonas said he’d like to see J&J buy back more of its stock going forward, a move not likely before the company closes on the Synthes deal. J&J shares were nearly unchanged after the announcement.

He noted that J&J has new promise with a pipeline of medicines including blood clot preventer Xarelto, developed with Bayer AG, and prostate cancer drug Zytiga.

“He’s done a good job for most of the business but obviously the consumer business is sort of a big black eye,” Jonas said of Weldon. “He chose good managers.”